DearSenator:
On behalf of the 362,000 members of theNational Taxpayers Union, I encourage you to oppose S. 1619, the “Currency ExchangeRate Oversight Reform Act of 2011.” Sponsored by Sen. Sherrod Brown (D-OH),this bill would classify undervalued currencies as an illegal subsidy underexisting law, thus enabling the Department of Commerce to enact protectionistmeasures such as countervailing duties to discourage imports from thosecountries. This approach would backfire on the U.S. economy and distractpolicymakers’ from other critical problems underlying our economic woes.
The history of the United States islittered with examples of overzealous attempts to blame foreign government forunfair trade practices during periods of high unemployment. By mistaking tradedeficits (and by extension an undervalued renminbi) as a primary cause ofAmerica’s gallingly slow recovery, S. 1619 would continue, rather than breakfrom, this tradition.
As tempting and convenient as thisapproach may be, its problems are numerous. As argued by Dr. Derek Scissors ofthe Heritage Foundation, the immediate predicament is the inability todetermine an exact amount of currency undervaluation, which is typically givenin broad ranges.
Even if this challenge were to beovercome, thereby allowing the federal government to put upward pressure onChina’s currency, there is scant evidence that it would have an ameliorativeeffect on the trade deficit or our economy. For instance, from July 2005 toJuly 2008, the renminbi rose 20 percent against the dollar, but the tradedeficit rose to $268 billion. On theother hand, from July 2008 to April 2010 the renminbi did not move against thedollar, and yet the trade deficit fellto $227 billion. This, as well as Americans’ consumption patterns, especiallyin regard to Chinese goods, suggests that attempts to force currencyappreciation could lead to higher prices for our own buyers.
Not only does this bill misidentify theproblems, but it overlooks the enormous benefits America enjoys from trade. Thelower-priced imports allow American taxpayers to stretch their paychecksfurther and enable them to spend more on other, potentially U.S.-made goods.Furthermore, because a significant percentage of the value of exports comesfrom components and raw materials produced in the United States, imposing anyform of sanctions would penalize American workers.
Rather than pressuring the Chinese, orother nations, to inflate the value of their currency, Washington should befocused on addressing the numerous regulations, restrictions on energydevelopment, taxes, and tariffs that are inhibiting job creation and economicgrowth. Doing so will strike the proper balance between economiccompetitiveness abroad and economic sovereignty at home. In the process, byavoiding artificial, statist measures, America will serve as a shining exampleof how a global free-market economy can deliver prosperity for all. For thesereasons, NTU recommends a “NO” vote on the CurrencyExchange Rate Oversight Reform Act of 2011.
Sincerely,
Brandon GreifeFederalGovernment Affairs Manager